Are Property Inspection Waivers worth the risk?
If you're buying or refinancing a home, your lender may give you the option to use a Property Inspection Waiver – or PIW – on your loan application. The program, begun by Fannie Mae in 2017, allows you to move forward with your mortgage without an appraisal. It's a newer concept, and some lenders love it. But what prompted it, and what are the associated risks?
How do Property Inspection Waivers work?
Basically, determining what your home is worth falls into the hands of your lender. They determine its value automatically on a computer, using an online database from Fannie Mae in lieu of hiring a local appraiser to personally inspect the home you're about to buy. So, rather than a manual evaluation, lenders rely entirely on computer processes to sift through a pile of previously collected information.
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Who is eligible for a Property Inspection Waiver?
The program is limited currently, but it is progressively expanding to include more types of transactions. Your property needs to have records in Fannie Mae's electronic database, so homes which have never been appraised aren't eligible for a PIW. Additionally, you must have an excellent credit score and high assets to be approved.
Why do lenders use Property Inspection Waivers?
The waiver removes appraisal expenses, and it can trim closing time considerably for buyers. On the surface, this streamlined process seems like a bargain — but there's a vital point you'll want to recognize. With a PIW, your lender is NOT liable if the assessment winds up being wrong. That's great for lenders, but affords zero protection to the buyer.
What could happen if I agree to a Property Inspection Waiver?
The information in Fannie Mae's database is derived from past appraisals done by professional appraisers. it might be somewhat accurate, but it won't necessarily be a current evaluation of the exterior and interior quality in a building that's constantly changing. Without a professional appraisal of your home, new improvements, remodels, or damages can easily be omitted by the system.
Due to these shortcomings, you can imagine a situation where your home is valued too high by the computer program assessing it. If that happens, you could run into snags when it's time to sell. You might not be able to receive what you paid for it, and you'll have no recourse against your lender when the money falls short.
What's the bottom line?
A definitive appraisal usually costs a few hundred dollars, but it can save you a substantial amount more in the future. With a PIW, there's no guarantee that you're receiving an honest valuation of your most expensive asset.
Gregory James Company, Inc. can help.
Buying or refinancing a property is a big decision with grand consequences. You should know with certainty that you're getting a fair deal, and working with a licensed appraiser is the smartest way to go. Computers and algorithms are in almost every area of modern life, but when it comes to measuring the value of your property, nothing is more accurate than the careful assessment of a licensed professional you trust.